General Motors Corp and Chrysler LLC are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multi-billion dollar government bailout, Bloomberg reported Thursday, citing a person familiar with internal discussions.
In response to automakers' bailout plea, staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the sector without liquidation, Bloomberg said.
Publicly GM CEO Rick Wagoner has said bankruptcy would mean liquidation because consumers would refuse to buy cars from a company that might not be able to back warranties or supply parts. Bankruptcy is "way down the list of options," GM board member George Fisher told Bloomberg yesterday in an interview.
Chrysler spokeswoman Shawn Morgan didn't have an immediate comment.
The automakers are returning to Congress Thursday for ahigh-stakes hearings they hope will persuade skeptical lawmakers to save them with $34 billion in emergency aid, but a top Senate Democrat wants to hand their problem to the Federal Reserve.
Two weeks after a botched attempt on Capitol Hill, repentant leaders of General Motors Corp., Ford Motor Co. and Chrysler LLC were appealing to the Senate Banking Committee on Thursday with three separate survival plans that include massive restructuring, the ditching of corporate jets and vows by CEOs to work for $1 a year.
But they could expect a chilly reception on Capitol Hill. Even a top Democrat in charge of evaluating their aid requests made it clear he was eager to avoid voting on a bailout. Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, wrote to Federal Reserve Chairman Ben Bernanke on Wednesday asking the central bank chief whether there was anything stopping him from using his considerable lending authority to help the automakers.
And Senate Majority Leader Harry Reid, D-Nev., said it was up to the Bush administration to unilaterally rescue the Big Three with loans drawn from the $700 billion Wall Street rescue fund, since Congress was still unwilling to do so. "I just don't think we have the votes to do that now," he told The Associated Press.
Dodd's committee was hearing testimony on the companies' plans from GM CEO Rick Wagoner, Ford CEO Alan Mulally, Chrysler CEO Bob Nardelli, UAW president Ron Gettelfinger and the head of the Government Accountability Office. The House Financial Services Committee was to hold a similar session on Friday.
Automakers were trying to make the case that the billions in loans would be a bridge to survival and profitability.
In the streets outside the Capitol, all three companies were showcasing their futuristic, green models in hopes of counteracting their image as purveyors of gas-guzzling SUVs. Wagoner planned to drive to the hearing in a test version of the Chevrolet Volt, an extended-range electric vehicle expected to go on sale in 2010.
Reid and House Speaker Nancy Pelosi, D-Calif., said the hearings would help determine whether Congress would consider a massive aid package for the industry in a special session next week. Critics say the companies have been poorly managed and failed to show they won't be back for another government rescue.
The Big Three are struggling to stay afloat heading into 2009 during an economic recession, a steep decline in sales and a tight credit market. The three companies burned through nearly $18 billion in cash reserves during the last quarter.
Chrysler said it needed $7 billion by year's end to keep operating. GM asked for an immediate $4 billion as the first installment of a $12 billion loan, plus a $6 billion line of credit to use if economic conditions deteriorate. Both said in plans submitted to Congress that they could drag the entire industry down if they fail. Ford requested a $9 billion "standby line of credit" in case one of its Detroit competitors fails.
Wagoner and Mulally both say said they'll work for $1 a year -- a move Chrysler's Nardelli has already made -- if their firms accept government loans. All three plans envision the government getting a stake in the auto companies that would allow taxpayers to share in future gains if they recover.
In Detroit, the United Auto Workers union said it would delay the three companies' payments to a multibillion-dollar, union-run health care trust and essentially end a jobs bank program in which laid-off workers are paid most of their salaries. They also decided to let the Detroit leadership begin renegotiating elements of landmark contracts signed last year, a move that could lead to wage concessions.
The companies, union officials and car dealers were lobbying feverishly for the loans, arguing that the collapse of one or more of the Detroit carmakers would throttle the already weakened U.S. economy and jeopardize the nation's manufacturing sector.
Yet the bailout remains unpopular with the public. Sixty-one percent oppose providing the auto companies with billions in federal assistance, according to a CNN-Opinion Research Corp. poll released on Wednesday. Fifty-three percent said it would not help the country's economy.
The auto executives were roundly criticized for taking corporate jets to the hearings last month and this time made the 520-mile trip to Washington aboard hybrid cars. Underscoring the different approach, Wagoner and GM officials ate lunch Wednesday at Quiznos at a Pennsylvania rest stop along the way.
The Associated Press and Reuters contributed to this report.